Philippine Business Magazine: Volume 8 No. 6 - Industry
High Gear
Luxury car sales zoom past the country’s economic slowdown
By Delma L. Peyra

Volvo cars cater to the “affluent progressives who have reached a certain level of satisfaction in their careers”

Much like the rest of Asia, the Philippines is still one hot market for luxury marques. Consider Manila’s healthy appetite for Louis Vuitton bags, Armani suits, Omega watches, and Manolo Blahnik shoes. This, of course, is also true in the desire to own and drive the most evident badge of success and preeminence – a luxury car, preferably European.

The country’s moneyed class, it seems, is even determined to have the ultimate in luxury – a Rolls Royce. Are there serious buyers in the Philippines for a P30-million British car? “Oh yes, there are,” assures Federico de Guzman, Vice President for Marketing of Auto Prominence, dealer primarily of Audi cars as he also points to a Bentley beside the Rolls Royce in their Makati showroom. The Bentley, he says, sells for P22 million.

Clearly, at least, for the very wealthy, affordability is not an issue as imported cars are slapped as much as a 30% tariff, a common rate in Asian economies. So buyers here of, say, a Mercedes Benz or Volvo are actually shelling more money than buyers in Europe or the United States.

While conservative buyers used to be the market of premium autos, brisk sales in recent months are attributed to the young and successful who are snapping up premium coupes and sedans — the cheapest European brand costing P1.6 million. Corporate professionals or entrepreneurs as young as the mid-twenties to early thirties age bracket want to get behind the wheels of a Mercedes or Volvo, if not a BMW, or a Jaguar.

With a client base ready to be tapped, auto makers BMW, Volvo, Jaguar, and Audi have further upped the ante by aggressive marketing strategies – flexible pricing, cozy client servicing, and giving consumers a wide range of models to choose from.

Healthy Sales
While the deluxe car segment suffered a slump in year 2000 (with sales dipping 18.4%), 2001 saw its recovery. BMW, the first European marque to put up its own subsidiary in the country posted an 82.5% growth — selling 323 units for the first nine months of the year compared to last year’s 177 units. The German automaker garnered 52% of the luxury car market, more than double its share of 24% in 2000.
Even the September terrorist attacks in the U.S. have not dampened luxury car buyers. “We have had 40 bookings even after September 11,” says Alberto Arcilla, President and CEO of Viking Cars, exclusive distributor of Volvo cars.

Luxury car buyers are flocking to showrooms and even posting orders before models arrive in the country. Jaguar Cars Inc. took nine reservations for its X-Type model — the most affordable Jaguar (sticker price: P2.75 million), before the units arrived in September. The company expects to sell 100 to 150 X-type units, competing with Volvo and BMW – the other top players in the 2.5 liter segment of the premium market which sells some 600 units a year.

Cars of Choice
A considerable effort to appeal to the younger and more adventurous set — reflected in image branding and pricing – is evident across all deluxe automakers. And today, what is the perfect vehicle to benchmark one’s success whether as a business executive or as an entrepreneur? It used to be a Mercedes Benz but now, it seems the car of choice for the young and successful is a BMW. Not only is a Beemer stylish but its superior driving capabilities are well known.

For P1.575 million, young upstarts can take home the BMW 316i – a 1.6 liter saloon equipped with the German car’s acceleration power (maximum of 105 brake horsepower and rated max torque of 165 Newton meters). And like all BMWs, it is a car designed to be admired for its looks with its elegant features, inside and outside.

The market’s desire for eye-pleasing designs has even steered Swedish carmaker Volvo to come up with more sporty-looking models. Known for its safe, “boxy,” and conservative-looking cars, Volvo is now reaching out to the young, more adventurous set. The front-wheel drive S80 (sticker price: P2.625 million), unlike previous Volvos – has a wing to it – “shoulders,” making the luxury sedan sleeker in look and style.

Careful though to protect its image as a serious, discreet marque, Volvo’s Arcilla points out that they cater to the “affluent progressives” whom he describes as “well educated, who have reached a certain level of satisfaction in their careers, and who do not need to brag about their status.”

If there’s one thing that Volvo cars are known for, it’s their premium on safety. Standard features for Volvo cars include passenger safety with crumple zones, driver’s side SRS airbag, collapsible steering column, side-impact protection system, and Whiplash protection system (WHIPS), among others.

Another European carmaker slowly gaining ground in the deluxe market is Audi which first mass-marketed its cars in the country in 1996. “We are now included in the shopping list of serious luxury car buyers,” claims de Guzman. “Clients discover what we are talking about once they have test-driven our cars.” Audi cars, he says, are for today’s sophisticated car owners who value “reliability and durability” more than just image.

Audi cars are for today’s sophisticated car owners who value “reliability and durability” more than just image

The automobile with its logo of four interlocked circles is a pioneer in front-wheel technology. “A car is more stable with front wheel drive,” explains de Guzman because it is “being pulled, not pushed.”

Two of Audi’s models available in the country are the A4 and the A6. Audi’s GP Automatic is priced at P1.794 million and is marketed towards the relatively young market such as entrepreneurs who own their companies. The 1.8 liter, 4-cylinder, 20-valve A4 has also two variants: the Turbo Saloon priced at P2.104 million and the Turbo wagon priced at P2.367 million. The 2.4-liter, 30-valve A6 is the “CEO car” – a blend of the classic Audi look and sleek, modern design and can be had for a cool P3.075 million.

Aggressive Pricing
With a local assembly plant for its series 3 cars, BMW Philippines has the leverage to market its entry to mid-level sedans aggressively – an edge over its competitors, which have to import completely built-up units. It has also offered a flexible finance package for the series 3 saloons and coupes (priced from P1.575 million to P3.1 million) where buyers have the option to plunk in a 35% down payment and pay the balance for as low as P25,000 to P50,000 monthly amortization.

Volvo, on the other hand has the medium-sized S40 sedan as an entry-level luxury car which is competing head-on with BMW’s 316i at P1.575 million. And like BMW, it has come up with easy payment schemes, matching the 35% down payment offer while the rest of the balance can be settled within 48 months.

Jaguar Cars Inc. with its fast, road-burning autos has leapt into the fray with its introduction of the affordable 2.5 liter S-type model at P2.75 million. The S-type is expected to be a serious temptation for the 25- to 35-year-old set who now have the option to pay P1.5 million in down payment, with balance payable in 24 months.
Auto Prominence has a current zero-interest promo for the Audi A4 GP automatic. Buyers can defer payments on the original P1.794 million price tag over 36 months at P24,912-a-month installment after a 50% (P897,000) down payment.

Servicing and Marketing
The luxury car industry provides also the requisite high-touch service to its clients. While most luxury car buyers are typically those with three-car or four-car garages, there’s a marked repeat buying pattern once an owner has settled on premium marque of his choice. It is essential therefore for automakers or dealers to extend client relationship long after buyers have taken home their purchased cars.

“We treat our clients as clients for life,” says Lyn Manalansang, Viking Car’s senior manager for marketing. Their database of “1,700 Volvo clients” is regularly updated with news and activities. “We also orient our clients’ chauffeurs on the features and upkeep of Volvo cars,” says Arcilla, proof that it takes its clientele’s needs seriously. Indeed, unlike Westerners who prefer to drive their own vehicles, Filipino executives, like most Asians, prefer to have their cars chauffeur-driven.

Audi which counts up to 70% of its client base coming from the corporate circle, keeps closely in-touch with companies who want to give their upper-level officers the chance to be driven in luxury vehicles. De Guzman counts companies such as Nestle, Avon, and Ayala among its roster of clients.

Jaguar Cars worldwide offers an unconditional warranty of three years or before a 10,000-mileage. Most of its rivals have a guarantee of only three years.

BMW’s Gamble
This year’s clear winner in the luxury car stakes is of course BMW Philippines. With its own assembly plant in the country, it is able to price its various car models, in particular the series 3 models, aggressively. It has already earned sales of P710 million in the third quarter of 2001 and is gearing up for more growth in 2002.

Unlike its rivals which are constrained by high import tariff rates and inventory considerations, BMW Philippines formally opened a local assembly plant in April 2001 with very good results. Aside from allowing pricing to be affordable to a broader set of clientele, it was able to offer more models to the market – a total of eleven variants of sedans, sports coupes, convertible, and a sports wagon.

A slight setback for the German carmaker was the decision of the government not to grant license to its plan to bring in its series 5 models in “soft” completely-knocked-down units (CKD). If allowed, BMW would then also be able to price its series 5 models as competitively as its series 3 autos. CKDs have import duties of only 3% while completely-built-units have tariff rates of 30%. BMW counters that what the government will lose in tariff revenues, it will gain in local value-added in terms of labor such as painting job (estimated at P200,000 per unit) and welding (P30,000 per unit).

Nevertheless, if the other luxury carmakers follow BMW’s example to assemble at least a part of its line-up in the country, the country will not only have more affordable premium cars in the market, but will also add solid investment to the country’s economy.